THE SELECT COMMITTEE ON ECONOMIC AND FOREIGN AFFAIRS

REPORT ON OVERSIGHT VISIT TO LIMPOPO TO INVESTIGATE ISSUES RELATING TO JOB CREATION AND SMMES

21 AUGUST 2003

The delegation was comprised as follows:

The meeting was held at the Limpopo Provincial Department of Economic and Foreign Affairs.

The purpose of the visit was to:

  1. Meet with the Provincial Standing Committee on Economic Affairs, NAFCOC, SMMEs and any other stakeholders.
  2. Establish the progress and challenges for economic development and job creation.
  3. Assess the impact of Khula Enterprise and Ntsika on the Limpopo Province in relation to economic development and job creation.
  4. Undertake a site visit to the Sebetiela Citrus Estate and the Polokwane Smelter.

The following made presentations:

 

 

 

 

 

 

 

  1. THE LIMPOPO PROVINCIAL DEPARTMENT OF FINANCE AND ECONOMIC AFFAIRS
  2. Prosperity

    The Limpopo Province is situated on the border and therefore it is seen as a link between South Africa and the other Southern African and African States. The N1 highway also links Provinces within South Africa, especially Limpopo with Gauteng, the Economic Capitol of South Africa. Limpopo Province is thus seen as being in a strategic position economically.

    Limpopo Province is said to have the financial institutions, the tourist attractions and hospitality facilities, however the bulk of its revenue is derived from the mining industry which generates half of the revenue and the other half is dichotomized between Business and Tourism industries. There are twelve established mines along the `Dilokong’ Corridor and the province also produces one of the most sought after metals nowadays, namely, Titanium. The Province’s mining industry also produces Gold, Diamond, Platinum, Silver, Copper and Coal.

    The Polokwane Platinum Smelter Plant is said to produce six times more than the Rustenburg Smelter in the North-West Province, which is bigger.

    The development of the Rooipoort Dam is said to have given rise to many agricultural projects. Over R1 billion is needed to develop another dam. It is said that the Minister of Water Affairs and Forestry visited the Province and talked of commissioning the development of the Rooipoort Dam, but nothing has come forth to date.

    The Trans-Frontier Game Reservation Park, between South Africa and Mozambique, has led to growth in the tourism industry. The State owned game reserves would open for private sector development and the private sector investment is encouraged.

    The negotiations of a R10 million investment into the coal-mining sector by Yskor, Eskom and other Corporations are said to be underway. On the industrial side there is a R5 billion worth of investment on the way.

    Problems

    Lack of Water

    Studies have shown that in four to five years there would be severe scarcity of water in and around Polokwane and in the long run in the whole of the Limpopo Province. Already R4.7 million had been spent on efforts towards water security. The scarcity of water would mean that the mines would have to stop production and the farms would be affected as well and already the Limpopo Province cannot contain its high rate of unemployment.

    Lack of Infrastructure

    It is said that most road accidents are caused by non-servicing or lack of proper road (infrastructure) system.

    The road that is used from the mines to the Polokwane Smelter and into the Polokwane CBD cannot contain the heavy flow of traffic and would need servicing time and again.

    Farm Workers Retrenchment

    It was pointed out that there were some breakthroughs, by way of negotiations, for instance in the case of ZZ2 (a tomato farm), some workers were reinstated and some were paid out.

    The foot and mouth disease on the border of Zimbabwe affected all agricultural products, however efforts were made to contain the disease.

  3. PRESENTATION BY THE SMME DIRECTORATE
  4. The Directorate was established in 1994, to tackle problems such as:

    The Directorate’s strategy was focused on unlocking any bottlenecks towards business development.

    The Limpopo Province lacked the retail finance intermediaries; in 1997 the only support came from ABSA Bank and the SEF in Tzaneen (a minor lending institution). The solution was for the Directorate to encourage the establishment of retail finance intermediaries. The Directorate had to spearhead the development of the `Institutional Support Infrastructure’.

    The Province had to set-up a network of Local Business Service Centres (LBSC). Currently there are six LBSCS established and supported by the Directorate to:

    The Province is said to have 22 service providers of which 16 are private initiatives, 8 of them are accredited by NTSIKA. Four of the LBSCs are financially supported by NTSIKA and six by the SMME Directorate.

    The LBSCs supported by government have been provided with Light Delivery Vans to enable them to service their areas.

    The six LBSCs supported by government have trained 461 SMMEs. The Maatla-ke-Batho LBSC has secured 10 computers donated by Nashua Polokoane and efforts are underway to have a computer center at the LBSC. The Giyani LBSC has secured R1.2 million and R211 000 from DNA for training of SMMEs.

    The four LBSCs supported by NTSIKA have been provided with the In-Touch Programme that has improved the evaluation and monitoring of these LBSCs in terms of the impact of their services.

    The Challenge

    There is lack of coordination between the Province and NTSIKA with regards to monitoring the LBSCs in terms of the impact of their services.

    The installation of the In-Touch Programme at the Limpopo SMME Agency to act as a hub would therefore address this challenge.

    The monitoring and evaluation of LBSCs is now a responsibility of the Limpopo SMME Agency.

    The Limpopo SMME Agency meets quarterly with all LBSCs to discuss the progress and challenges.

    The Directorate established the Limpopo SMME Agency in 1999 to:

    Access To Marketing And Procurement Opportunities

    The Directorate is ensuring procurement in favour of SMMEs by monitoring procurement by the Tender Board and the mining companies in the Province.

    The Tender Board is providing the Directorate with reports, on the tenders allocated to the SMMEs, on a monthly basis. Contracts to the value of R465 543 584 were allocated to SMMEs between April 2001 and November 2002.

    A Business Linkage center is being set-up at Derdegelid to coordinate procurement from the mines in the Sekhukhune area. The Centre started its operations at the LIMDEV Business Units at Derdegelid in June 2003.

    There is also the SMME/BEE database that the mines and the Directorate have subscribed to. The purpose of the database is to enable the Business Linkage Centres and the mines to source the SMMEs from the same database.

    Through this system the Directorate would be able to monitor the procurement in favour of the SMMEs more effectively and address problems such as fronting.

    The Directorate is also looking at the Procurement policies of the mines to ensure that they are SMME biased.

    Manufacturing Incubation

    The Directorate has established manufacturing incubation units and 90 jobs have been created out of the initiative.

    An entrepreneur support center has been established at Phalaborwa and nine SMMEs are being incubated at this Centre and two outside of the center.

    Twenty-eight jobs were sustained. Five permanent and seventy-seven temporary jobs were created. 120 Incubatees were trained on business management skills by the center.

    The Limpopo Manufacturing Advice Centre (LIMAC) was launched in 2001. The purpose of the center is to assist SMMEs in manufacturing to enhance amongst other things productivity, quality of products and profitability.

    The number of projects implemented since the inception of LIMAC is 110. The value of these projects is R1 359 483.28.

    The number of success stories achieved from SMMEs is 24; this information is submitted monthly to NAMAC, which in turn submit to Trade and Industry.

     

    Targeted Assistance Programme

    The Directorate through its targeted programme has achieved the following:

    The Directorate organised workshops to inform women of the programmes run by the Directorate and how they can access such services.

    The South African Women Entrepreneurs Network (SAWEN) is a national network of businesswomen set-up by government with a purpose of ensuring that women access information and opportunities. SAWEN workshops were conducted in all the regions of the Province.

    The Province has always ensured participation of women entrepreneurs in empowerment workshops and summits. Women entrepreneurs from the Province participated at the Global Summit 2001 in Hong Kong, Global Summit 2000 in Johannesburg, SAWEN launch in Johannesburg 2002, International Women’s Forum in 2002, TWIB awards in Eastern Cape 2001 and Kwa-Zulu Natal 2002.

     

    Grassroots Technology

    The Province from 12 to 14 June 2002 hosted the Commonwealth Grassroots Innovation Technology Conference. Innovators from the Province showcased their technological innovation during the conference.

    Innovators from India were in the Province for two weeks prior to the Conference to transfer skills to technical college students.

    The Province has identified a number of grassroots innovations that has a potential to be commercialised and these are being discussed with the Free State Technikon and India innovators.

    Technology Top 100 Awards (Tt100)

    The Province participated in the awards in 2002 and the finalists from the Province were announced at a formal gala dinner hosted by the Premier of the Province.

    Vhembe Development Agency

    The project is a joint partnership between the government and the United Nations Office For Project Service (UNOPS) aimed at supporting local economic and financial development in the Vhembe District Municipality; the Agency was launched in March 2003.

    The project was implemented in Mpumalanga, Limpopo, Nothern Cape and Eastern Cape with a budget of US$2.9

    The Vhembe Development Agency has appointed a Centre Manager, an Administrator and the Board has been constituted and has undergone training in corporate governance.

    The staff has undergone training on global and local competitiveness and financial management for local economic practitioners.

    A survey of businesses in the different municipalities has been finalised.

     

    SMME Inter-Departmental Forum

    The SMME Inter-Departmental Forum was established to co-ordinate SMME development in the Province.

    The participating departments are:

    QUESTIONS FROM THE NCOP DELEGATION AND RESPONSES FROM THE DEPARTMENT

    Question 1: How far has the Province gone in ensuring that the Province does not only produce raw materials but manufacture them as well?

    Answer: We try to encourage our SMMEs to diversify their production, because that would increase their benefits and again the province has established the manufacturing incubation units in a number of areas around the Province.

    Question 2: Do you have mechanisms, when there is no more water; are there alternative sources?

    Answer: Something is being done with regards to water, there is a plan B.

    Question 3: What strategies does the Department have to integrate its economy with Zimbabwe, etc?

    Answer: Our Premier here in Limpopo once said that he is not interested in Limpopo being the economic capitol of South Africa, but of the SADEC.

    Question 4: What steps have been taken to ensure that contractors have a

    track record to see through that tender?

    Answer: Something is being done to tighten the screws, but if you do not have someone from outside government to help then it is hard.

    Question 5: What was the reasoning behind bringing the Smelter Plant to Polokwane?

    Answer: It was a compromise to have it here, there were people who wanted to have it outside the Province, but managed by the Province. Polokwane is the center of convergence in this Province, so it was also a strategic location.

    Question 6: What are your plans towards the loan you have with the Development Bank of Southern Africa. Are you servicing your loan and are you able to access more funds?

    Answer: The loan is standing at R300 million and we are paying them R29 million per month and as the LIMDEV we have not been able to access more funds.

    Question 7: What is the impact of KHULA and NTSIKA on economic development the Province?

    Answer: The impact of KHULA and NTSIKA is not visible. As a Department we have not heard anything from the two institutions. NTSIKA is doing a little, but KHULA is out of sight.

    1. NAFCOC PRESENTATION
    2. NAFCOC began by pointing out that their Committee was new and only seven days old, because of the internal problems it had.

      NAFCOC needs to work along side government, to tackle problems like poverty and unemployment. It is believed that there will not be a solution to poverty unless there is job creation and the latter is what the new Committee is currently focusing on.

      The problem of fronting or `rent a black’ is seen as emanating from people going into business immature and alone. NAFCOC believes that no person should go into business alone, because no person can do everything that the business world requires alone.

      The question of skills is seen as very challenging. However NAFCOC is grateful to the Sector Education and Training Authorities and sees itself as having a role to play in the skills development, as a business community.

      The New Economic Partnership for Africa’s Development and the Black Economic Development are very distant from the Province in NAFCOC’s view.

      According to NAFCOC, KHULA and NTSIKA should be decentralized so as to have an idea of what the needs are of the different Provinces or areas within a Province.

      It was made clear that there is no merger between NAFCOC and SACOB, but that they have an umbrella body to support government. NAFCOC was seen as an African Chamber, before it was plagued with internal disputes.

      QUESTIONS FROM THE DELEGATION AND RESPONSES FROM NAFCOC

      Question 1:Is there an impact from Khula and Ntsika?

      Answer: Conditions for loans have been hard to access to SMME people and their performance is not pleasing.

      Question 2: I do not see any support for one another among African small business people. What is NAFCOC’s approach to this problem?

      Answer: We do not have anything as African small business people, how can we support one another, but NAFCOC needs to look into coming up with a solution to that. In fact NAFCOC has a strategy, which it will outline in the near future.

      Question 3: Do you feel that government is working in your interest or not?

      Answer: We are on good terms with government we did not tow the line then, but now we are on the same waveband.

      Question 4: What is NAFCOC’s position on the Black Economic Empowerment Strategy?

      Answer: I believe we are just marketing the wholesaler’s product; we are not owners of the products. BEE should include all the provinces; otherwise it is just a Gauteng-based exercise.

      Question 5: Is there a structure or programme of training entrepreneurs or not?

      Answer: We have a number of training agents in the country and in this province. Businesspersons must have specialties; no one can do everything alone.

    3. SIGHT VISIT: POLOKWANE ALUMINIUM SMELTER
    4. The plant employs just under 500 people, 15% of the employees are women and 70% of the employees are from around the Limpopo Province.

      It was said that the lowest paid employee receives a salary of up to R6000.00, however this is because the menial tasks like cleaning are outsourced.

      From the mines the plant receives10 000 tons of platinum concetrate per day, in the form of sand, then water and other substances like sulphate are removed and then the platinum matter is sent to the Rustenburg Smelter Plant for further processing.

      A collaboration of Canadian and American technology is used in the plant, but all material and the production of these technological appliances is South African.

      The plant consumes more electrical power than the whole of Polokwane; the electrical power is bought directly from ESKOM.

      The lifespan of the plant depends on the lifespan of the mines, which is believed to be a hundred years.

    5. SIGHT VISIT: ZEBEDIELA CITRUS ESTATE

    The Zebediela Citrus (pty) LTD is a subsidiary company of the Agricultural and Rural Development Corporation (ARDC) and it was one of the 13 such estates and farms that needed to be restructured in terms of the new policy, that was introduced by the MEC for Agriculture in 2000.

    This project was established in 1918 by the Schlesinger Group and taken over by ARDC in 1996. It is situated on the Potgietersrus-Lebowakgomo road. It covers a total area of 13785 ha on 12 state-owned farms, the majority of which is under claim.

    Citrus are produced on 850 ha comprising of 45% navels, 29% Valencia and 26% lemons. The number of workers is 290 and during harvesting season a further 955 workers are employed.

    Interventions By The Limpopo Department Of Agriculture

    Due to the inefficiency of the managerial staff, all of them were replaced by the officials of the Limpopo Department of Agriculture (LDA), in consultation with the relevant unions in 2001.

    In the same year the LDA started with the recruitment of a strategic partner (SP) for short and long term operation of the estate, in terms of its policy on the restructuring of State Assets. A suitable SP was identified through requests for proposals and a detailed project profile.

    Shareholding Arrangements

    The strategic partner would purchase 100% shares of the operating company at R1 million subject to allocation of shares as follows:

    PS1. The net profit of the estate in a normal year is between 2 and 3.5 million Rand

    PS2. The Landowners are identified through the lengthy process of land restitution with the help of the Provincial Land Claims Commissioner’s office, 1450 beneficiaries were identified.

    Lease Agreement

    PS. The short-term contracts were signed for two production years with the designated strategic partner, after being identified on cost and output sharing basis. This resulted into, upkeep and better and more profitable operation of the estate at almost no cost to the ARDC, maintaining the workforce, creation of trust and realistic track records of the SP as well as ARDC, the workers and the community.

    Working Capitol

     

     

     

    Management of the Estate

    The strategic partner would provide general management expertise and management personnel.

    The General-Manager would manage the operating company in collaboration with and under the guidance of the Board of Directors.

    The strategic partner would be reimbursed at 4% per annum of the gross turnover for technical, managerial and training inputs.

    The workers trust and the community trust or CPA are represented on the Board of Directors, with voting rights together with the strategic partner.

    The government is also represented on the Board of Directors, with no voting rights, to monitor adherence to various clauses of the agreement.

    Workers and Community Trusts/CPA

    Trust deeds have been prepared by the ARDC and consulted workers who in turn elected their trustees and modified to some extent its clauses to more appropriate ones in terms of their needs. Their unions played a major role in this process and in the process of being registered.

    The community on the other hand accepted their institutional structure as "Community Property Association" as recommended by the Land Claims Commissioner’s office, which took charge of assisting in the establishment. The land and all its fixed improvements would be transferred to the Association upon approval by the honourable Minister of Land Affairs on all the issues pertaining to the sustainable operation of the estate as well as the future of the land owners in that regard.

    Although some percentage of the permanent workers of the estate are from the claimant community, they will also enjoy from the workers share, together with other workers as their incentive for higher productivity.

    If a none community worker leaves, he or she would be replaced by one from the claimant community, but the 15% workers share would not be reduced over time nor would it be transferred to a third party.

    Training and Capacity Building

    The strategic partner would provide accredited and apprenticeship training (technical and managerial) for the other stakeholders, enabling them to continue with the operation of the estate on sustainable basis at the end of their involvement.

    The Department of Agriculture as part of its formal and on job training program, would assist the children and youth of the claimant community and workers to obtain relevant qualifications from tertiary institutions to support their estate and assets.

    Expansion Opportunities

    The estate would be expanded and would increase the income and create more job opportunities.

    Table grapes and mangoes have been identified as potential expansion possibilities, which would increase the present workforce from 300 to 1000, people, no redundancy.

    The strategic partner would provide the required capital cost of such expansion at prime rate with the support of the operating company.

    Since one of the most important limiting factor in the operation of Zebediela estate, is the shortage of water resources which has so far resulted into curtailment of the orchard area from 1200 ha to about 850 ha in the 1980s, any expansion program would have to take such factors into cognizance. Presently three dams supported by about 120 boreholes are watering the estate.

    R600 000 per annum is the cost of purchasing bags in Zebediela and a similar figure for other bagging and transport materials. As part of the restructuring policy, 30 youth have been trained and are busy as SMMEs manufacturing such materials for the Zebediela and other markets. This number would increase due to projected demand of the market.

    Four groups would therefore benefit from such expansion programs, the community, the workers, the SP and the unemployed youth.

    Exit Strategy

    The strategic partner should create sufficient expertise and technical capacity within the workforce and the community who take over the operation after the expiry of the lease period, if they so wish.

    There should be sufficient financial resources accumulated during the lease period for future operation after the expiry of the lease period.

    The share of the strategic partner would be purchased by the community at the value of the crop on the land plus a percentage of the value of the moveable assets.

    The ownership of the land and the fixed improvements would remain with the community.

    At the expiry date of the 15 years lease period, there can be three options for the continuation of the operation, self-operation, new partner or the same partner who would assist the operation.

    Way Forward

    Registration of the workers trust and the community property association.

    Securing the water rights for the estate from resources outside the Zebediela 101ks, the areas which are also under claim

    Signing of the three agreements:

    The submission of all agreements and all supporting documents to the office of the Minister of Land Affairs, for the approval of the plan and the transfer of the land to the claimant community, through the office of the Land Claims Commissioner and the Department of Land Affairs.

    ZEBEDIELA TODAY

    Actual production 2001: Total production = 9000 tons

    Export in carton = 0

    Actual production 2002: Total production = 13 500 tons

    Export in cartons = 328 000

    Expected production 2003: Total production = 20 500 tons

    Export in cartons = 900 000

     

    QUESTIONS AND RESPONSES

    Question 1. How much is the turnover and profit from exports?

    Answer: The turnover is between 37 to 40 million and the profit is 3 to 4

    million, workers get 15% of profit.

    Question 2. How much do workers earn?

    Answer: Workers earn R900.00 per month.

    Question 3. Where do you export to, Africa or Europe mostly?

    Answer: We export mainly to the Northern hemisphere and not very much into Africa.

    Question 4. Why were there no exports in 2001?

    Answer: Because no attempts were made to export due to wrong policies and inefficient management.

    Question 5. Why are there empty spaces in the field?

    Answer: Due to shortage of water, we had to reduce the size of arable land and also because we need to diversify production. The development of dams is needed now so as to sustain other 2 Zebediela projects.

     

    Report to be considered.